At the same time, Priority Health, the insurer owned by Spectrum, will increase the premiums it charges employers by about 7 percent, Michael Freed, Spectrum's chief financial officer, said Thursday at the hospital system's annual public meeting.

He attributed much of the increase to what he called a "hidden tax" on businesses, since Spectrum makes up the shortfall in Medicare and Medicaid payments by raising rates for other patients.

Spectrum expects to lose more than $129 million caring for Medicare and Medicaid patients in the fiscal year beginning July 1, Freed said, compared with nearly $83 million in the current fiscal year.

For every dollar it costs to care for a Medicare patient, the federal insurance program pays about 89 cents, he said.

Medicaid, a state and federal program for low-income residents, pays about 69 cents for every dollar it costs to care for a patient, he said.

"Clearly, one of our problems is the growing Medicare and Medicaid losses," Freed said. "It's something we've anticipated. Nevertheless, it is a problem."

This will mark the second consecutive year Spectrum has raised rates for hospital care and Priority has raised the premiums it charges for health insurance. As a result, Freed predicted a growing number of employers will choose insurance plans that include a larger deductible for their employees to pay.

"A few years ago, almost no one had deductible plans," he said.

Despite the Medicare and Medicaid losses, Spectrum's rates remain in the bottom 15 percent to 18 percent compared to similar hospitals around the country, he said.

"Even with this burden, we're still an excellent value for West Michigan," he said.

Over the coming year, Spectrum, already the area's largest employer, expects to add the equivalent of 390 full-time employees, mainly at its Grand Rapids hospitals, bringing it to more than 12,000 full-time employees.

That is in line with the nonprofit corporation's growth since Butterworth and Blodgett hospitals merged in 1997 to form Spectrum Health. The first year after the merger, the new corporation had an annual budget of about $750 million.

The budget for the coming fiscal year will be more than $2.7 billion, about 6 percent larger than the current year's budget.

In the fiscal year ending June 30, Spectrum will lose nearly $60 million in the value of its investment portfolio due to stock market declines, Freed said, but added he does not expect that loss to be repeated next year.

The proposed budget anticipates income will exceed expenses by 3.4 percent, or nearly $94 million, an amount Spectrum will reinvest in buildings and equipment, he said.